Things to Avoid After Applying for a Mortgage

Things to Avoid After Applying for a Mortgage | MyKCM

Congratulations! You’ve found a home to buy and have applied for a mortgage! You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.

Below is a list of Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, but some may not.

1. Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.

2. Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.

3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.

4. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payments against you.

5. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.

6. Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.

7. Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.

Bottom Line

Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.

Are you thinking about buying a home? Download my free Buyers Guide, “Things to consider when buying a home”. And start you home search at mynexthome.com.

Dani

Mortgage Pre-Qualification, Pre-Approval and Down Payment

There is plenty of real estate terms used in transactions. Needless to say, it can be confusing for both buyers and sellers trying to navigate the course, and the home loan process might feel overwhelming and difficult to understand. Faced with terms like “Pre-Qualification” and “Pre-Approval” that are often (and mistakenly) used interchangeably, it’s no wonder they find themselves wondering how to proceed. So here is the skinny on the two mortgage “Pre’s”…

Pre-Qualification

The first step in obtaining a home loan is to meet with a lender and discuss your financial situation. The lender will inquire about income, job stability, debt and credit (see example online form here at my preferred lenders site) . Once they have performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification Letter to you, the potential buyer. This letter will identify the maximum sales price, down payment requirement and basic terms of the loan, such as interest rate.

The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a lender who is couching for their ability to obtain a loan.

Pre-Approval

A Pre-Approval is quite different. In this case, the lender collects all the necessary information and proof of eligibility and has it reviewed by the lender underwriter for approval. A Pre-Approval letter is almost like shopping with cash, the only remaining piece of the puzzle is the property they are buying.

Down Payment: How much do you need?bank-loan-concept-2-1057032-1279x852

Gone are the days when anyone could buy a home with just a promise and a signature (thank goodness!). The “No Documentation” loans allowed virtually anyone to buy a house with no money down, with just a simple credit check. After the mortgage meltdown, this all changed as lenders tightened guidelines and down payments were once again required.

How much down payment do you actually need? The answer might surprise you; there are many ways to buy a home with less than 20% down payment. Let’s take a look at four economical loan options.

  • 0% Down – There are still two loan programs which allow you to buy a home for no money down; the VA loan and the USDA loan. The VA loan requires the borrower to be a qualified service person or veteran and the USDA loan is for certain areas under the Department of Agriculture (surprisingly, the areas in Michigan include suburban areas, not just rural).
  • 5% Down – Conventional loans with loan limits can allow you to buy a home with as little as 5% down. These loans do have Private Mortgage Insurance (PMI) which can be eliminated when the loan amount falls below the 20% threshold.
  • 3.5% Down – FHA offers first time home buyers a good home loan for only 3.5% down payment. Again, these loans have a limit and PMI but offer a faster entry into the housing market.

If you’re considering buying a new home, talk to a reputable local lender. I am always happy to share my preferred lender information, simply send me a message using the question box to the right.